Fractional CFOs and Why Businesses Need Them

By Gene Godick | June, 06, 2022 | Outsourced CFO

Large, public companies maintain in-house accounting and finance teams with skills ranging from bookkeeping to financial planning and analyses, all overseen by a CFO. Smaller companies often use a part-time bookkeeper, assign tasks like budgeting and forecasting to various people on an ad-hoc basis, and put off hiring a full-time CFO.

But the level of financial expertise in your company does not have to be an all-or-nothing situation. The solution is to use a fractional CFO.

What is a fractional CFO?

As the term suggests, a fractional CFO provides companies with the knowledge, skills, and guidance a CFO brings, but on a part-time, rather than full-time basis.

Frankly, we think the word “fractional” is an unfortunate choice—it suggests something that is “less than a whole” and seems to minimize the value of having a CFO with the right skills on your team part-time rather than full-time when part-time is the right choice given your company’s needs and resources.

If we must use the term “fractional CFO”, we think of it as a way to get exactly what your company needs at a fraction of the cost of having a full-time CFO.

Why do companies use fractional CFOs?

Most companies need a CFO to handle responsibilities that go beyond what a bookkeeper or even a controller does.

That can cover a lot of territories, from making financial forecasts to preparing board presentations to evaluating a sales team’s productivity, and much more.

But often, companies that need someone to handle at least some of those responsibilities cannot justify having a full-time CFO. In that case, hiring a fractional CFO is actually better than the alternatives, which are:

Doing without any CFO talent, assigning those tasks to people who do not have the right skills to do them well (which is not a great solution for those people or for the company), trying to keep things going without solid financial forecasts, providing incomplete presentations to the board, evaluating your sales team using a seat-of-the-pants approach, and so on, or
Hiring a full-time CFO who then does not have enough to do to keep busy, which means you are over-paying someone at a senior level—clearly not a good use of company resources.

1. Fractional CFOs provide a full finance team

Companies have different needs at different stages of growth. That means that while using a fractional CFO is better than the alternatives described above (no CFO or a full-time CFO who is not busy and is therefore overpaid), having just one fractional CFO is often not ideal.

Better approach: an outsourced finance team that can draw from a deep bench of resources to meet a company’s evolving needs by providing different fractional experts who specialize in whatever the company needs at a particular time.

The reality is, that the title of “CFO” encompasses a wide range of skills. At a big company with a full-time CFO, that individual has a team to take on various responsibilities; the CFO manages and reviews the team’s work.

But, if your company is not big enough to justify having a full-time CFO with a team of specialists, hiring just one part-time CFO might not get you what you really need.

A sports analogy about bringing in the right player for the situation works here – you might need a fast base runner right now, and later in the game, you’ll need a great relief pitcher or a solid batter to bring in a run.

However, you are not likely to find all of those skills in a single player; you need a deep bench.

The same idea applies to hiring a firm that provides outsourced CFO services and can offer a fully outsourced finance team.

Fractional CFOs can provide skills that complement whatever financial team you have in place. You may already have someone with a good eye for operations and logistics but may need help with strategic, visionary thinking.

At different points in time, you may need CFO-level skills for different reasons: to create budgets and forecasts, verify the accuracy of your financial statements, interact with lenders, structure employee incentive plans, or help your senior management team with strategic planning.

You may also need someone to help put the right structure, processes, and financial discipline in place to achieve goals that will boost the company’s appeal to potential buyers.

Tapping into a team of fractional CFOs over time, through a full-service outsourced CFO firm, allows you to meet each need as it arises.

2. Fractional CFOs can trouble-shoot and problem-solve

Hiring a fractional CFO can also head off financial trouble. When profitability is not where it seems like it should be, or cash flow is a problem, or the books are not done right, you need help but may not know exactly what kind. The right fractional CFO can figure out what you need and has no conflict of interest.

We were recently hired by the CEO of a manufacturing business who felt that something was amiss in the accounting/ finance arena but could not identify the problem. In conducting our investigation, we noticed that inventory was quite high relative to sales and determined that a manager had decided to put a big inventory cushion in place. That not only used up cash but also highlighted a lack of internal controls.

After interviewing internal people and an outside accountant who reviewed the books every six months, we recommended that they terminate the current controller and we helped to hire the new one.

A good CFO can be a contrarian when you need one, and it is easier for a fractional CFO to play that role than someone in-house.

For example, when the economy slows and growth assumptions have to be pared back, you will have to make some difficult decisions. That may involve reducing compensation, staff, and/or warehouse space, pressuring suppliers for better terms, or seeking new capital.

Making those recommendations can be difficult for managers who want to protect their staff and their “turf”. A fractional CFO can provide objective analyses of trade-offs among alternatives and help to implement whatever is best for the company.

How much does a fractional CFO cost?

The hourly rate is typically between $200-$300/per hour, depending on your needs and the individual’s expertise.

But, you probably need someone for fewer hours per month than you realize.

More important: focus on the value you get for your money – a fractional CFO can prevent costly mistakes that more than pay for the out-of-pocket cost, generating a solid return on the investment you are making by adding the right CFO skills to your team.

Can a fractional CFO work remotely?

Finally, in today’s era of remote work, we believe that working with fractional CFOs remotely is fine, although we do like being in person, at least occasionally.

Having a good rapport with your fractional CFO is very important, wherever you are located. A CEO and fractional CFO need to be able to speak frankly to each other; otherwise, you are not getting your money’s worth.

To learn how fractional CFO services could be the right solution for your company, contact G-Squared Partners. There’s a good chance our part-time CFO services have worked for a number of businesses with needs very much like yours.